Forest fires have been a fact of nature since forests have existed. The ecosystems of coastal, central and southern California
seem designed to experience somewhat frequent low-intensity burns that have the effect of clearing away the small and weak
This clearing makes room for new growth that will add to the overall strength later on. This natural process has been interrupted
over the last few decades by federal government environmental policies that call for full-scale efforts to stop all fires,
along with doing everything possible to prevent small fires from erupting in the first place. The unintended consequence has
been more fires that are larger and more dangerous than ever before.
Move from fires to our financial system, and we get the same picture. The Federal Reserve Bank of the United States was created
in 1913. Since then, there has been a growing reluctance from our political leaders to allow financial setbacks in our nation
to occur, and we have used the Fed as one of our main tools to banish something that simply cannot be done away with from
any human device.
We experienced downturns before 1913. For the most part, they were sharp but rather short-lived. The incredible strength of
our free market system allowed us to come roaring back. The sad state of our current system is demonstrating the effects of
95 years of intervention and manipulation that has the potential of burning the entire forest down.
You don’t have to look any further than your own financial statements to know this system is broken. Global equity prices
have retraced the entire move that took place from 2003 until late last year. There is a growing list of stocks, including
Intel, that are trading at the same levels they were in 1996.
This is years of wealth accumulation evaporating in weeks. I estimate that the Dow’s plunge eventually will bring about 9
percent unemployment (Citibank just announced another 50,000 layoffs). I believe this winter will bring about the hardest
economic times in America since World War II.
The saddest thing about all this is, it was so preventable. All you have to do is drastically cut federal taxes, spending
and regulations and then sit back and watch. Yes, there will be short-term pain (but that is happening, anyway).
Taking these steps will have the effect
of allowing the real redwoods to begin a sustainable path of growth to the sky.
The fires will always be with us. Get the federal government out of our way, and you will be amazed at how strong our system
will become. (I estimate that replacing federal income taxes with a 23-percent sales tax, combined with cutting spending and
regulations by one-third, would allow the Dow to rise to 20,000 within five years.)
Hauke is the CEO of Samex Capital Advisors, a locally based money manager. Views expressed
here are the writer’s. Hauke can
be reached at 203-3365 or at [email protected]